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Business News/ Opinion / Online-views/  Opinion | The importance of forging a united front amid a full-blown trade war

New alliances emerge when things seem to fall apart. This is more so in the current international trading system built on the principles for maximizing dollar-and-cents gains. The European Union (EU), the world’s largest trading entity, is a classic player for making alliances. Just when the Trump administration is launching an all-out trade war with China by subjecting all Chinese products to crowbar tariffs, the EU stuck a partial trade deal with the US on Monday.

“We discussed how to move forward and identify priorities on both sides, and how to achieve concrete results in the short to medium term," EU trade commissioner Cecilia Malmstrom tweeted after a meeting with US ambassador Robert Lighthizer in Brussels on 10 September. “Lots of work remains this autumn," she suggested.

For the past several months, the EU along with the US and Japan are busy forging a common front as part of a “trilateral" process against China for bringing new disciplines on industrial subsidies, state-owned enterprises, and intellectual properties. So, the trans-Atlantic alliance has sprung back to life after Donald Trump’s cowboy threats of retaliatory measures against Brussels.

The alliance with the EU has also become important for the US, which is finding it difficult to make a significant dent in its trade war with China. “The Trump administration has been seeking to temper its trade fights with its strategic allies in recent weeks, including the negotiation of a deal to reform NAFTA (North American Free Trade Agreement) with Mexico and Canada, in an effort to focus on its escalating trade dispute with Beijing," wrote James Politi and Jim Brunsden in Financial Times on 10 September.

On a separate front, the EU is quietly promoting reforms at the Centre William Rappard that houses the World Trade Organization (WTO). Much of the EU proposals “for modernizing the World Trade Organization" must surely have been discussed with the US during the Malmstrom-Lighthizer meeting. For Trump and his trade policy chief Lighthizer, the WTO and its existing rules had overly benefited China in global trade since 2001. The EU shares many of the US’ concerns about China’s alleged trade-distorting policies. These “distortions", according to the EU, are “associated with non-market policies and practices in major trading nations that WTO does not seem to address adequately." Little wonder that the EU’s leaked non-paper, reviewed by Mint, targets China.

Brussels calls for making the WTO system “flexible enough to accommodate different sets of ambition among its membership", and enable plurilateral negotiations among more than two countries for making different sets of rule-making goals to address “the 21st-century trade realities". The EU wants to bring “differentiation" to deny special and differential flexibilities in the existing rules to China, India, South Africa, and Indonesia among others. “A new approach to development and special and differential treatment based on a case-by-case, needs driven analysis" must be promoted, according to the EU.

Facing opposition from developing countries and in an attempt to jettison the consensus principle that guides the multilateral trading system, the EU lamented that “it has not been possible to advance negotiations in the WTO for a number of years, with the exception of the agreement on trade facilitation and agricultural export subsidies" because of the lack of flexibility within the system. Hence, the demand for plurilateral initiatives that go against multilateral trade priorities.

Last week, Canada has also circulated a nine-page draft discussion paper called Strengthening and Modernising the WTO almost on the lines of the EU’s non-paper. Canada, which is facing sustained heat from its neighbour US in the ongoing NAFTA-revamp negotiations, has gone a step further than Brussels by proposing to convene a ministerial meeting of 13 countries next month (24-25 October) in Ottawa. The 13 countries that will take part in the Ottawa meeting include the EU, Japan, Canada, Switzerland, Norway, Australia, New Zealand, Singapore, South Korea, Brazil, Chile, Mexico and Kenya.

The Canadian paper says “the combination of disruption and paralysis has begun to erode respect for rules-based trade, and the institutions that govern it, paving the way for trade distorting policies." Consequently, Canada has called for reforms in all three “main functions of the WTO" that include the monitoring function, the dispute settlement system and the negotiating arm for bringing new rules.

In short, both the EU and Canada remain silent about the lawlessness being caused by the US in the global trading system. Instead of forming a credible front against the 800-pound gorilla in the room, the EU and Canada want to create opportunistic alliances for foisting more obligations on the countries of the Global South.

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Updated: 13 Sep 2018, 11:38 PM IST
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